Where economics went wrong
from Lars Syll
David Colander and Craig Freedman’s Where Economics Went Wrong is a provocative book designed to inspire economists to serious reflection on the nature of economics and how it is practiced. It is a book to that seeks to stimulate discussion about the current state of the discipline; it should be read by anyone who categorizes what they do as applied policy work. I agree with much – though not all – of what Colander and Freedman’s write … Reliance on mathematics has obscured much of the assumed structure that economists work from, leaving us unable to clearly articulate assumptions or identify our often normative precepts. Adoption of the scientific method has resulted in the belief that economic theory can deliver useful, practical knowledge. However, this belief has not been tempered by a corresponding understanding of the limits of theory in a complex world where people do not always behave as rational actors, but are influenced by culture, society, history, and government structure. In this review essay, I explore some aspects of the Chicago-School story to illustrate why shifting the profession to Colander and Freedman’s vision of a Classical liberal attitude is likely to be a difficult task – and why the effort is valuable.
A book well worth reading, although yours truly have to confess of not being convinced that it really is possible — or even desirable — to separate ‘positive economics’ from ‘normative economics’. With the background of this year’s ‘Nobel prize’ in economics, it would certainly also have been interesting to evaluate what the ‘randomistas’ revolution with its (alleged) abandonment of theory for experiments means for the authors’ thesis on the separation between ‘science’ (theory) and its ‘application’ (policy).
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Real-World Economics Review Blog 
Economists went wrong when they failed to confront the obvious and glaring contradiction of allowing a monopoly on the creation of money for the private banks. They also were undoubtedly unaware of the monopoly monetary paradigm of Debt Only as the sole form and vehicle for the distribution of credit/money that the private banks additionally enjoyed.
The history of central banking, as accurate as its history has been noted, also fails to note this, particularly the latter monetary paradigm.
Economics will continue to be wrong as long as economists continue to believe that fitting equations will lead to acceptable theory, They never reject hypotheses which do not conform to the empirical evidence. They need to apply the scientific method. Unfortunately then do not understand what that means.
As I repeat frequently economists have NOT ONE valid quantitative hypothesis and they fail to recognise the single quantitative analysis which is not invalidated by the empirical evidence.
Would you accept that there is at least a common sense distinction between descriptive/explanatory propositions and prescriptive propositions? Granted that commitments, values and beliefs will influence the kinds of issues we are interested in, I still think I can make a distinction between a statement that income inequality is worsening as opposed to a statement that I should, or should not, do something about it.
“Adoption of the scientific method has resulted in …”
Except of course they do not practise the scientific method, or even know what it is.
Making postulates of no relevance to the observable world and deducing some nice theorems from them is mathematics, not science.
.. and the parameters used belong to a different universe not ours.
In my view it is not possible to separate positive and normative economics. The reason is that when you describe “what is”, you are describing what some people have said “ought to be”. A system that distributes wealth and income in a grossly unequal way had to have been created by a series of decisions, guided and implemented by people who think income and wealth “ought to be” distributed unequally. In general, of course, the people responsible for these decisions (what is income, who should be taxed, which things are public goods, and so on) are unwilling to talk about how they think things “ought to be”, and hide behind economists willing to invent explanations supporting the idea that that’s just “how things are”. In other words, positive economics is just a corrupt variation of normative economics, with the normative part well hidden.
Where economics went wrong was not its dependence on math—it was its dependence on the wrong kind of math. One could say something like they had IS-LM which was a hammer , so then everything they saw was a nail.
One reason also for this was pragmatic— the correct kind of math to use was too difficult and might not lead anywhere. It took like 100 years before any mathematical physics could create something like WWW. Also alot of everyday economics does not require much ‘economic theory’. Some people still practice subsistance agriculture.
(I am not sure but I may be banned from posting comments.)
I’d missed your usually telling if unusually expressed comments, Ishy. I hadn’t imagined you had been banned: dyslexia is not a sin but as Ronald D Davis put it, a gift: a sign of an unusually flexible mind. So hello again. Hope to see more of you.
I agree with Citizen Rat. It is legitimate to criticise economists whose “positive” analysis is driven by their ideology. But you cannot call them unscientific unless you believe there is a reality to be analysed separately from one’s normative beliefs. I don’t think people want to criticise economists for having a different ideology from them; I think they want to criticise them for confusing positive and normative elements. That entails the positive and normative are conceptually different. We must cling to the distinction.
Btw, people are still using the term “economists” which is the source of most woolly thinking on this blog. If you know what you are talking about, say who you mean.
The bald truth is that private money creation only in the form and vehicle of debt is NOT a legitimate economic business model….at all. Why? Because it is an exterior “economic” parasite that violates the micro-economic/actually productive sanctity of no ADDITIONAL costs post retail sale or pre-production. The fact that it does so is prima facie evidence that it is indeed wholly parasitical.
Neo-liberal macro-economics as Steve Keen has exposed ignores money, debt and banks. The problem of course is that Keen, lacking the illegitimacy insight above and also not having the hiding in plain sight paradigm changing power of a direct and reciprocal monetary policy at the point of retail sale…didn’t offer up anything other than a minuscule reform to remedy the situation either.
Well, macro-economics is a very young “discipline” with a very short cultural horizon that came into being only after a world wide movement for a less than paradigm changing form and amount of monetary gifting was nevertheless threatening to introduce the seed of such paradigm changing awareness. And it has served more to obfuscate matters than elucidate them ever since.
The new monetary paradigm aids every genuine economic agent individual and commercial and “miraculously” integrates price and asset DEflation into profit making systems (the primary signatures of genuine paradigm changes are increased abundance and/or greatly increased productivity, inversion of present time individual and systemic realities, resolution of longstanding apparently “unresolvable” problems and consequent permanent progression.
Focus on the money system and its civilization long unchanged paradigm, or be a culturally hide bound chatterer whose erudition never rises above minor reform and often reactively switches direction back to past orthodoxy.